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2020-21
LATIN AMERICA COST TRENDS GUIDE Data-Driven Insights on Global Construction Trends
CBRE RESEARCH
In 2013, CBRE began publishing its annual Fit-Out Cost Guides to help our clients answer commonly asked questions about construction cost data, market trends and technology related to office fit-outs. This year, with volatility created by a global pandemic and our clients looking to CBRE for insights into the “bigger picture” of cost trends, we have expanded the report to include data across all major industry sectors and portfolio strategies.
CBRE’s 2020-21 Global Project Cost Guide leverages data drawn from the more than 50,000 projects our Project Management professionals lead around the world each year as well as analysis and insights from our industry-leading Cost Consultancy practice.
This year’s report truly showcases the depth and breadth of CBRE Project Management’s knowledge and experience, as well as our commitment to our clients. From the project managers who continued to work on essential projects across the globe to the analysts and cost consultants who built on both the quantity and quality of the project data that fed this report, our team truly stepped up in a challenging time.
To our clients, thank you for your continued partnership and the opportunity to play a part in your successes. We hope the Global Project Cost Guide series continues to be a useful resource. I encourage you to reach out to your local CBRE Project Management team for even more insights on the data you’ll find within these pages.
Sincere thanks,
Jim Dobleske Global President, Project Management
FOREWORD FROM CBRE PROJECT MANAGEMENT’S GLOBAL PRESIDENT
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EXECUTIVE SUMMARY 5
KEY TAKEAWAYS 5
GLOBAL COST TRENDS 6
LATIN AMERICA & CARIBBEAN COST TRENDS 10
TABLE OF CONTENTS
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In the following report, CBRE provides data-driven insights to create increased transparency among these cost variables as well as the trends we’re seeing in construction costs worldwide. Understanding these variables and how they impact the cost of delivering projects should provide confidence in the approach to capital planning.
CBRE’s Global Cost Trends Guide remains the most comprehensive analysis of office pricing across all regions. This report is an evolution of CBRE’s annual Cost Fit-Out Guides (2019-20 Global Series), including data from across 75 countries and cost trend summaries in four regions – North America, EMEA, Asia Pacific, and Latin America. The intention of this report is to provide insight on macro trends with a future-looking perspective on cost variations and what we may see changing through 2021.
134 CITIES | 75 COUNTRIES
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2020 has seen decreases in construction costs due to contractors adjusting prices to win work to sustain their businesses into 2021-22. They’re unlikely to remain low as additional COVID-19 safety measures have added costs that further decrease their profits.
Construction costs have increased in countries with ongoing economic or political instability due to the increase in cost for imported materials.
Organizations have adjusted their budgets and increased investments in enabling technologies to accommodate some level of remote working.
Adjustments in the type and layout of office furniture reflects a need for greater flexibility and collaboration for when employees truly need to be face-to-face.
The planning, allocation and deployment of capital is perhaps the most critical element of a successful construction project. Before deciding to start a project or signing a contract, a strategic capital plan is crucial as the underlying backbone to guide the project. With significant variables such as sociopolitical impacts, dynamic labor markets and varying material costs, crafting a capital plan is more nuanced than most realize. The construction industry – always subject to rapidly changing labor markets and materials costs – has faced the added burden this year of COVID-19’s effects on manufacturing, labor, transportation and health and safety requirements.
The COVID-19 pandemic has brought challenges to the commercial fit-out industry. While countries respond with different levels of restrictions, there are many similarities in the way in which the fit-out markets have adjusted within them.
KEY TAKEAWAYSEXECUTIVE SUMMARY
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This 2020-21 CBRE Global Cost Trends Guide presents a consolidated view on the key changes in the four regions: North America, Latin America and the Caribbean, Europe Middle East and Africa, and Asia Pacific. We have analysed and presented the cost variance from last year’s Regional Fit-Out Cost Guides through the data and experience of CBRE’s in-country resources. Their knowledge of local markets has also contributed to forming an understanding of how projects may be managed going forward and some of the key issues that may be faced locally.
For many office workers, the living room has now become the boardroom and with client CAPEX budgets tightening across the world, project pipelines in all regions are being cut as clients search for cost saving measures. Consistently, each region is experiencing a flattening and even slight decrease of construction costs, particularly due to contractors pricing down in their bids (tenders) to remain competitive. This also counteracts the additional costs associated with COVID-19 safety measures and extensions of schedules due to decreased capacities
on sites. We should expect to see an increase in construction costs in 2021 as contractors see work return or potentially determine their price cuts are not sustainable given the added increase in costs associated with COVID-19 safety requirements.
In some countries in South America and Africa, the pandemic is exacerbating ongoing economic and political instability, driving inflation and weakening currency value. This has the effect of increasing costs at the high-quality end of the market, where imported materials are particularly common.
While prices may remain stable, components of clients’ budgets are changing to reflect the change in use of commercial office space. The current shift in response to COVID-19 to include more flexibility and remote work options has resulted in a heavier investment in technology for collaboration and video conferencing, as well as smart building technology. Looking to the future, many companies will implement some level of remote working and outfit their offices with ample collaboration technology, and we would expect an increase in technology spend to continue.
These statements are backed by current research and surveys, including CBRE’s The Transformation of CRE in the Age of COVID-19, The Future of the Office - 2020 Global Occupier Sentiment Survey and Workforce Sentiment Survey Results. Across all regions, while unit prices are remaining stable, clients appear to be budgeting more than they previously were for technology1.
The same is true of furniture costs, as the selection of furniture reflects greater collaboration space and flexible office arrangements. As a result of COVID-19, the requirement and demand for office furniture and office layouts that accommodate greater flexibility and mobility have seen a sharp increase. Based on industry interviews and manufacturer perspectives, CBRE’s Perspective on the Future of Furniture found that open collaboration space will increase in importance and manufacturers will likely pivot to support greater activity-based working.
GLOBAL COST TRENDS
1. Computers and personal equipment are typically not part of construction budgets.
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FIGURE 1 | 2020-21 GLOBAL COST TRENDSAS COMPARED WITH 2019-20 FIT-OUT COST DATA
Source: CBRE Cost Consultancy.
CONSTRUCTION FF&E TECHNOLOGY RELOCATION PROFESSIONAL FEES
NORTHAMERICA
SLIGHTLY DOWN
STABLE
SLIGHTLY UP
STABLE
SLIGHTLY DOWN
EUROPE, MIDDLE EAST,
& AFRICA STABLE STABLE
SLIGHTLY UP
STABLE
UP
ASIA PACIFIC
UP
STABLE
UP UP
STABLE
LATIN AMERICA & CARIBBEAN
UP UP UP
STABLE STABLE
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FrankfurtNew York
San Francisco
Paris
Seattle
Johannesburg
Tokyo
London
Chicago
Sydney
DublinHong KongMadrid
Atlanta
Shanghai
Buenos Aires
Dallas
Singapore
Santiago
Mexico City
Bogotá
São Paulo
Mumbai 1.261.20
1.17
1.16
1.10
1.10
1.03
1.00
0.98
0.95
0.92Hong Kong0.92
Madrid0.89
0.78
0.73
0.71
0.69
0.69
0.59
0.54
0.53
0.50
0.48
FIGURE 2 | GLOBAL TOP CITIES BY CONSTRUCTION COST2020 COST INDEX
Source: CBRE Cost Consultancy.Note: Cost indexes represent a comparison of 2020 fit-out costs between cities, providing an indication of discount or premium in each market.
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OVERVIEW OF PROJECT COST BREAKDOWNS COST FACTOR FIT-OUT QUALITY
As with previous iterations of this report, the following key components make up the foundation for the report: construction costs; furniture, fixtures and equipment (FF&E); technology and security; relocation; and professional fees. Our cost factors are based on quality level of
fit-out, as described below.CONSTRUCTION COSTS account for between 50% and 70% of the total project spend, making it the largest category. Internal finishes and mechanical/electrical (M&E) are typically the two largest areas of construction spend, though this is dictated by the design specification. These costs are quoted based on the upgrade of an existing ‘warm shell’ landlord’s space, which would include a raised access floor, suspended ceilings with a standard arrangement of M&E services, and standard decorated finishes to perimeter walls.
FF&E covers all loose furniture, systems furniture, signage, branding and artwork and is the second largest spend category, contributing between 20% and 30% of the total project cost.
RELOCATION costs include the move management and physical relocation of employees and their belongings. It is an integral part of a CAT B project and takes place during and upon completion of the fit-out works. While not a major percentage of project spend, relocations are the most personal aspect of the project, touching all occupants in some manner. This category includes front-end planning of activities and timelines, and the physical move and coordination required for both people and IT.
TECHNOLOGY covers tenants’ IT installations such as structured cabling, wired and wireless network equipment and audio-visual systems and typically accounts for 6% to 12% of total project spend. Security systems costs are driven predominantly by electronic access control and video surveillance capabilities. Desktop and laptop computers, multiple monitors and desk phones are considered users’ equipment and typically don’t sit within a fit-out budget; however, the placement of these components is essential to any workplace strategy. We are also noticing an increase in ‘smart building’ elements in commercial fit-outs, and this will tend to carry some additional construction costs for implementation of monitored and controllable systems, such as HVAC and lighting.
PROFESSIONAL FEES account for between 6% and 12% of the total project spend and cover all architectural and engineering design, project management, cost consultancy and specialist consultants (acoustic, LEED, etc). Professional fees are often represented as a percentage of construction cost, in which case the ratio would range between 10% and 20% of construction cost.
LOW tier is characterized by a high-quality fit-out with little to no customization and lower architectural finish standards. This would be used for clients emphasizing value while still achieving basic design standards.
MEDIUM tier is for clients who are seeking a blend of customization, various upgraded finishes and cost effectiveness.
HIGH tier offers a unique office with high degrees of customized design, finish level and specialty/amenity space.
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Latin American countries’ response to the COVID-19 pandemic has included significant time under government-imposed lockdowns that, in many cases, have lasted longer than elsewhere in the world. This has exacerbated existing economic issues in some countries and driven a shift in the use of office space for clients. Mexico’s political environment has led to the economy seeing zero growth and there has been little foreign investment. The value of the peso against the U.S. dollar is lower than previous years which is affecting the value of equipment and raw materials that come from abroad. In Brazil, the exchange rate of the real to the U.S. dollar has weakened by over 30% in the last 12 months and the cumulative national construction inflation rate during the same period has been 4.6%.
In Chile, anti-government movements and ongoing public demonstrations since late 2019 generated a social crisis and led to Chile rated as a high-risk country, causing low private investment and a significant contraction in the construction market, with costs reportedly dropping by up to 18%. While the social crisis was effectively put on hold by the pandemic, concerns that it will resurface could cause continued cost volatility locally.
Long periods of quarantine measures in countries such as Argentina add to future uncertainty due to their adverse economic environments. As these countries come out of the lockdowns, government monetary policies that may have caused significant inflation could cause the construction sector to experience sharp price increases.
LATIN AMERICA & CARIBBEAN COST TRENDS
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It has been reported as a common theme across the region, as globally, that contractors and manufacturers are willing to pay to get work as some of their competitors go out of business. It is important for them to generate work for their pipelines, so contractors are tending to cut profit margins and take on the additional costs associated with COVID-19 safety to be highly competitive in tender. The same competitive strategy is true of professional fees as firms secure work in the short term.
Construction, at the premium end of the fit-out market in Latin America, is reliant on imported materials such as carpet, furniture and large MEP plants. Countries across the region that have experienced high levels of inflation and currency depreciation will face similarly
large price increases on the import of goods. And while manufacturers may cut margins to win work, this may be offset by economic situations.
Clients are taking various stances on continuation of project work. In Mexico, CBRE resources report that up to 40% of project pitches have been canceled due to the pandemic. In Chile, as well as in Brazil, many clients have expressed that they will maintain investment in the long term while in the short term, current budgets are cut and diverted to ensure offices meet local return-to-work protocols with measures such as thermal cameras, HVAC system maintenance and improved cleaning protocols. In Argentina, we are seeing a trend among our clients to downsize their existing facilities to make savings and with most
staff working remotely across the LATAM region, companies are searching for workplace optimisations as they embrace the home office. In the longer term, investment in wellbeing and healthy workplaces is a key item on the list, as are investments in technology to enable more effective collaboration and smart building investment with implementation of technologies such as workstation and room scheduling solutions.
International clients operating in the region and budgeting their projects in stronger currencies may wish to take advantage of the opportunity for capital improvements in the short term.
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Management of projects in 2020-21
Projects that were already on site when quarantine measures were introduced have suffered significant delays to project completion dates. Given the length of time that these measures have been in place, there will be a period of reactivation as projects recover to their full operational capacity. This could bring additional cost and delay as full capacity will not be restored immediately, and many countries continue with social distancing or working time restrictions, such as Mexico’s traffic-light monitoring system. For those projects proceeding at the preconstruction stage, design productivity has not dropped due to the success of remote working across the region. Clients should be aware of the risks posed by the inability of designers and contractors to visit sites to conduct technical due diligence and plan contingency allowances accordingly.
CBRE resources across the region have also reported that CAPEX investment is under more scrutiny and subject to extended approval processes. While many are cutting costs in a tough economic climate and prioritising spending, indecisiveness on the future of their workplace is also a factor in this delay.
FIGURE 3 | LATIN AMERICA & CARIBBEAN COST TRENDSAS COMPARED WITH 2019-20 FIT-OUT COST DATA
CONSTRUCTION FF&E TECHNOLOGY RELOCATION PROFESSIONAL FEES
LATIN AMERICA& CARIBBEAN
UP UP UP
STABLE STABLE
Source: CBRE Cost Consultancy.
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FIGURE 4 | LATAM 2020 COST DATAYEAR-TO-YEAR COMPARISON SHOWING CHANGE EXPERIENCED IN 2020
TRADITIONAL FIT-OUT TOTAL ($/SQ M)
AGILE FIT-OUT TOTAL ($/SQ M)
CALCULATED AVERAGE TOTAL
PROJECT COST (%)COUNTRY CITY LOW HIGH LOW HIGHArgentina Buenos Aires 732 2,041 771 2,149 -3.6%Brazil Sao Paulo 679 1,196 685 1,362 -28.0%Chile Santiago 825 1,335 878 1,540 6.0%Colombia Bogota 775 1,270 805 1,375 4.9%Costa Rica San Jose 750 1,200 788 1,260 0.0%Ecuador Quito 1,172 1,595 1,244 1,582 33.2%Mexico Mexico City 840 1,352 848 1,375 3.3%
Source: CBRE Cost Consultancy.Note: The 2020/ 2021 costs are an update of the 2019/ 2020 Costs due to the impact of Covid-19.
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CONTACTS REGIONAL LEADER
AUTHOR
Jim DobleskeGlobal President, Project Management +1 704 376 7979 [email protected]
Julie WhelanGlobal Head of Occupier Research+1 508 789 [email protected]
Richard Barkham, Ph.D., MRICSGlobal Chief Economist & Head of Americas Research +1 617 912 5215 [email protected]
Henry Chin, Ph.D.Global Head of Investor Thought Leadership & Head of Research, APAC+852 2820 8160 [email protected]
Chris BoneSenior Managing Director, Project Management- South-Central Division & Latin [email protected] Ana González FerreroDirector,Project Management- [email protected]
Henrique CicchettoDirector, Project Management- [email protected]
Keith CarrizoDirector, Project Management- [email protected] Felipe DeFrancisco Wiesner Director, Project Management- [email protected] Oliver JaimesDirector Project Management- Mé[email protected]
Curt GranthamAmericas President,Project [email protected]
Juliana UribeProject Manager,Project Management- [email protected]
This report is not intended to be used as a budgeting guide for project costs. For specific project or budget information, please reach out to your local CBRE Project Management team.
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Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
2020-21
LATIN AMERICA COST TRENDS GUIDE Data-Driven Perspective on Global Construction Trends
